Hecht Commodity Report

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  • New record highs in gold in dollar terms- Silver closes above $24 per ounce
  • NYMEX PGMs move lower on the week
  • The dollar breaks through a technical support level
  • Copper and energy commodities lower
  • Coffee, sugar, and cocoa rally

 

This week, the four leaders of the tech giants testified before Congress as Alphabet, Amazon, Apple, and Facebook answered a host of questions, including their dominant positions in the technology business. As soon as the hearings were over, the four companies reported monster earnings. The profits are another sign of their presence and power.

The government inquiries in the US and EU could lead to new regulations and a breakup of the companies to encourage competition. Smaller companies are complaining that the dominant position makes it impossible to compete. Meanwhile, technology stocks, led by the four leaders, continue to soar. Time will tell if a breakup creates even more value for investors if the parts wind up worth more than the current companies in the trillion-plus dollar market cap club.

Gold rose to a new record high over the past week. The price surpassed the 2011 all-time peak on Monday, July 27, and traded to a high of $1981.10 on the August futures contract on Friday, July 31. Gold was trading at just below the $1270 level at the end of the week. Silver rose to a high of $26.275 on the September COMEX futures contract on July 28, and the price was at over the $24 per ounce level on Friday. Meanwhile, copper backed off to below the $2.90 level, and crude oil futures on NYMEX continued to hover around the $40 per barrel level.

On Thursday, July 30, the Commerce Department reported that US GDP fell at a seasonally and inflation-adjusted 32.9% in the second quarter or a 9.5% drop. Compared to the first quarter, it was the most significant decline in over seven decades, since 1947, when they began keeping records. At the same time, the initial jobless claims rose to 1.43 million. The economic data weighed on the stock market, but earnings from technology companies supported the NASDAQ. Meanwhile, the July Fed meeting yielded few surprises as the central bank remains committed to an accommodative stance for monetary policy. The Fed has no intention to even consider higher interest rates for the foreseeable future.

Coffee and sugar prices moved higher, and cocoa staged an impressive recovery.

Source: CQG

The dollar index fell through its critical support level at the September 2018 low of 93.395 as the index hit a low of 92.51 during the week. The next target on the downside is the February 2018 low at 88.15. The index settled at 93.321. A falling dollar and massive central bank accommodation create a potent bullish cocktail for commodity prices and inflation. If the period from 2008 through 2011 is a model for 2020, and in the coming years, we could see substantial appreciation in the commodities asset class. The writing is on the wall for raw material prices at the end of July 2020. Expect lots of volatility in markets across all asset classes. I remain a buyer of commodities on price weakness.

Highlights in commodities:

  • August gold rose by 3.44% on the week, settling at $1962.80 per ounce after making a new record high at $1981.10
  • September silver rose 5.98% for the week as the precious metal settled at $24.216 per ounce on July 31 after trading up to $26.275, the highest level since 2013
  • October platinum fell 3.88% on the week. October platinum was at a $1043.90 per ounce discount to August gold futures, which widened since last week
  • September palladium fell 6.49% and settled at $2145.30 per ounce. Rhodium was at a midpoint of $7,950 per ounce up $150 from July 24
  • September copper was 0.85% lower to the $2.8680 level since last week
  • September iron ore futures moved 2.47% higher over the past week
  • The BDI fell 2.88% since July 24 to the 1,348 level
  • October Rotterdam coal moved 2.07% higher since last week
  • September lumber was 8.20% higher since July 24 and was at the $585.80 per 1,000 board feet level
  • September NYMEX crude oil declined by 2.47%. The September contract closed the week at $40.27 per barrel- EIA and API crude oil inventories fell for the week ending on July 24
  • September Brent crude oil rolled to October and moved 0.62% lower since last week to $43.51 per barrel
  • The premium for Brent over WTI in October closed Friday at the $2.94 level as the spread was up $0.62 per barrel since last week
  • September gasoline fell 6.76% while September heating oil futures posted a 3.15% loss over the past week
  • The gasoline crack spread in September was 21.15% lower since last week. September heating oil crack moved 4.26% to the downside since July 24 as gasoline and heating oil underperformed crude oil
  • September natural gas fell 3.64% and closed the week at $1.799 per MMBtu. The EIA reported an injection of 26 bcf into storage on Thursday for the week ending on July 24- Injections have been falling for the past five weeks
  • November soybeans moved 0.75% lower and away from the $9 per bushel level
  • December corn was 2.39% lower on the week
  • CBOT September wheat declined 1.53% since last week to $5.3125 per bushel
  • October sugar rose 10.01% since July 24 and closed at 12.64 cents per pound on Friday
  • September coffee posted a 9.73% gain since last week as the price was at the $1.1895 per pound level
  • September cocoa was 7.91% higher since July 24
  • December cotton rose 4.26% since last week as the fiber futures were at the 62.66 cents per pound level
  • September FCOJ futures declined 2.21% since the previous report to $1.2175 per pound
  • October live cattle rose 2.64% since last week to settle at $1.07875 per pound
  • October feeder cattle rallied by 2.70% since July 24
  • October lean hog futures moved 1.05% lower over the past week and settled at 49.625 cents per pound
  • The September dollar index futures contract fell 1.12% on the week and traded below the 93 level, which was a technical breakdown
  • September Long-Bond futures were trading at 182-14 up 1-08 for the week
  • The Dow Jones Industrial Average closed at 26,428 on Friday, July 31 down only 42 points from July 24. The S&P 500 rose 1.73% since last week. The tech-heavy NASDAQ moved high on earnings to 10,745.27, up 382.09 since last week. The VIX was trading at around 24.46 on Friday down 1.38 on the back of higher S&P 500 stocks
  • Bitcoin broke out to the upside and was trading at $11,360.99 on Friday up $1,785.83 or 18.65% since July 24- Bitcoin futures traded to a high of $11,540 and closed near the high of the week
  • Ethereum was trading at $346.34 on Friday, up 22.90% since the last report after an over 21% gain last week

 

Price Changes for the week:

 

DBC closes at $12.94 per share, up four cents since July 24

 Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $851.27 million, and trades an average daily volume of 1,002,276 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume rose, net assets were stable over the past week, and the price of the ETF moved marginally higher from July 24.

 

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.   

                                                         

 

Andy Hecht

Author

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